Struggling finances for 18 retailers loom in 2022 as consumers exercise restraint in spending

The retail industry continues to grapple with a myriad of challenges, as the ongoing digital transformation and economic pressures take their toll.

In a recent report by CreditRiskMonitor, several retail companies were identified as having a high risk of insolvency within the next 12 months. Although specific company names were not disclosed, as many as 18 retailers were found to have a FRISK score of 1, indicating a 9.99% to 50% chance of filing for bankruptcy.

One retailer that has recently struggled is Tuesday Morning. The company filed for bankruptcy in 2020 and exited last year. In the second quarter of 2022, Tuesday Morning's sales fell by 4.6%, and its gross profit margin shrunk by 680 basis points. However, the company has recently struck a deal with Retail Ecommerce Ventures for $32 million in new debt and access to their digital platform, which could help turn the tide.

Another retail giant, Bed Bath & Beyond, has been on a roller coaster since the pandemic began. The company has faced supply chain issues, a drop in discretionary spending, and a failed attempt to juice up its private label offering. Bed Bath & Beyond has also been hit by a leadership vacuum, with Mark Tritton leaving the company after an abysmal quarterly earnings report this summer, the death by suicide of Chief Financial Officer Gustavo Arnal, and the elimination of the operating chief and store chief roles. The company has new debt financing and a plan to close over 150 stores and lay off staff to cut expenses.

The digital transformation in retail is ongoing and expensive to adapt to. Companies like The RealReal, Stitch Fix, ThredUp, and Digital Brands Group, which are among those with the lowest FRISK scores, are digitally savvy operators that held initial public offerings in recent years. However, this transformation has not been without its challenges. For example, The RealReal's founder, Julie Wainwright, stepped down as CEO this year, and the company's revenue increased by 47% in its most recent reporting period, but average order value was down.

The retail industry had a sensational year in 2020, except for restructuring experts. Retailers who reorganized were left with cleaner balance sheets, trimmed store footprints, and stronger financial positions. However, with stimulus payments gone, consumers under pressure from inflation, capital markets tighter, and business inputs still expensive, financially or operationally weaker players are at risk once again.

One positive note is that bankruptcies in the retail industry remain slow after years of "apocalypse" and the surge in the pandemic's first year. This could be due in part to the fact that COVID-19 is still present, and consumers may still be hesitant to return to physical stores.

Wayfair, another major player in the retail industry, has also faced challenges. The company announced a 10% cut to its corporate staff in August, and its net loss for every year it has ever reported publicly, going back to 2011. Party City's sales fell 4.6% in the second quarter, and gross profit margin shrunk by 680 basis points, similar to Tuesday Morning's results.

In conclusion, the retail industry continues to face a myriad of challenges, from the ongoing digital transformation to economic pressures. However, there are signs of hope, such as the slowdown in bankruptcies and the continued resilience of some retailers. As always, the retail landscape is one of constant change and adaptation.

Struggling finances for 18 retailers loom in 2022 as consumers exercise restraint in spending